Drugmakers' fury as China plans to widen price-cutting system

Domestic and multinational drugmakers in China have strongly criticised government plans for a wider roll-out of a piloted competitive tendering system for medicines procurement which has been shown to cut the prices of essential drugs by at least 30%.

The plans were announced at the annual National People's Congress in Beijing, where national leaders said the tendering system would be rolled-out further to support an increase in state health insurance coverage and moves to make health care more affordable.

Although the tendering scheme was piloted in five Chinese provinces, it is generally referred to as the "Anhui model" because in Anhui, the country's fourth-poorest province, it has been shown to reduce prices of essential drugs by an average of 53% below their officially-set maximum retail prices, with some price levels being slashed as much as 90%.

"The tendering system that we have implemented for basic drugs has proved to be effective and able to guarantee the drugs' safety, reasonable price and timely supply. Our next step is to further improve on these plans," Bloomberg reports Sun Zhigang, deputy director of the National Development and Reform Commission and head of the health care reform bureau at the State Council, as saying.

Currently, the tendering system covers 307 essential drugs but Ministers want to increase this to around 800 products, and also to cover the procurement of more expensive drugs used in hospitals in the treatment of diseases such as cancer. Research-based drugmakers say that doing so would force them to compete on price with generics makers, but supporters of the proposal point out that most such drugs are expensive imports.

While some observers feel that drugmakers will benefit as the government continues to add more products to the essential drugs list and extend state health insurance coverage to more and more of China's 1.3 billion population, others believe that manufacturers are being used as scapegoats and sector leaders are unhappy at the implications for their industry of a wider roll-out of the Anhui model. Several domestic firms have warned that their profits are likely to be cut as a result of the widening of the competitive tendering model, with some saying that they have already had to take a loss in order to sell their drugs to the authorities in Anhui.

The healthcare reform "is basically about tendering to compete on prices," but what needs to be prioritised is "guaranteeing quality first, rather than focusing on just prices, or this will be very unfair to China's drugmakers," Bloomberg quotes Guo Guangchang, chairman and co-founder of Fosun International, which controls the major drug maker Shanghai Fosun Pharmaceutical Co, as saying.

Last year, IMS Health forecast that drug spending in China will increase at the fastest rate globally during 2010-1015, with annual growth averaging 19%-22% and reaching as much as $125 billion by the end of the period.